Infosys tanks 7.7% on downgrades; leads sell-off in the IT world

Mumbai: Shares of software services giant Infosys plunged 7.7% on Friday – their biggest single-day fall in over three months – after the company slashed its FY24 revenue guidance, triggering downgrades from analysts. The disappointment in earnings forecasts by the sector leaders sparked a sell-off in shares of other companies such as TCS, Wipro, HCL Technologies and Tech Mahindra with the NSE Information Technology (IT) index shedding 4.1% on Friday – its biggest single day fall since April 17.

Infosys shares fell as much as 10% on the NSE to a low of ₹1,305 before settling at ₹1,337.4. The Bengaluru-based company slashed FY24 revenue guidance to 1%-3.5% from 4%-7%, a cut steeper than what the market expected.

“Any disappointment from the large bellwether stocks will always hurt sentiments. That’s what we saw today,” said Manishi Raychaudhuri, head of Asia-Pacific Equity Research and Asia ex Japan Equity Strategy, BNP Paribas Securities.

Brokerages Macquarie and Nomura downgraded the stock after the lower revenue guidance. Jefferies, Bank of America Securities, Motilal Oswal Financial Services, Nuvama Institutional Equities and HSBC cut earnings estimates.

Macquarie expects Infosys’s shares to fall another 15% from the current levels citing its disappointment with the company’s deal wins. Referring to a company announcement earlier this week that the company has entered into a five-year deal with an existing client to provide artificial intelligence (AI) and automation services with a target spend of $2 billion, it said the “$2 billion framework was merely an estimate by the management and not a mega deal.”

Out of the 33 analysts who reviewed the company’s first quarter earnings, 10 now have a ‘buy’ rating on the stock, while 18 of them stay ‘neutral’ and five have a ‘sell’ rating on the stock including recent downgrades, showed a Bloomberg poll.

The consensus price target declined 2.86% to ₹1,442, Bloomberg data showed. This implies an upside of 7.9% from Friday’s closing.

“The extent of the revenue guidance cut has come as a major shock for investors,” said Hemang Jani, a Mumbai-based market analyst. “The sell-off in IT stocks is some kind of an acknowledgement that the demand slowdown in the US is not a company specific issue.”

TCS, Tech Mahindra, HCL Technologies, and Wipro each declined between 2% and 4%.

“Infosys’ successive disappointment on guidance is a shocker, particularly given it is accompanied by strong deal flow and in-line results,” said Nuvama in a client note.